How I’d invest in buy-to-let property with just £5k today

If you want to invest in buy-to-let, but don’t have the capital to start, this stock could be the perfect alternative.

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There’s no denying that buy-to-let property has generated a considerable amount of wealth for investors over the past few years.

However, increasing regulation directed at the sector coupled with slowing house price growth and new tax laws mean that rental property is no longer as attractive an investment proposition as it once was.

On top of these additional layers of complexity, after a decade of strong home price growth, the average house price in the UK is now £234,853, implying a wannabe buy-to-let investor will need around £93,000 to buy their first property with a 60% mortgage.

This high startup cost means that buy-to-let investing is now out of range for most investors. However, there are other ways you can profit from the rising demand for rental property across the UK.

A unique vehicle

The PRS Reit (LSE: PRSR) was set up to offer investors exposure to buy-to-let property without having to own buildings themselves.

PRS owns and operates a portfolio of rental properties across the UK. These are purpose-built dwellings that have been designed to offer renters the most bang for their buck. They are new builds with universal fixtures and fittings, so the operational costs tend to be much lower than the sort of properties independent landlords tend to own. 

What’s more, because these are new properties, maintenance costs are relatively low. 

PRS also offers its tenants multi-year tenancies, with the average occupancy currently around three years in length. It also builds the properties around schools to attract young families who are looking for security. 

By operating at scale, PRS can provide a better quality of accommodation for its tenants and better service as a landlord all at a lower cost than independent buy-to-let investors. The company is also insulated from many of the changes policymakers have proposed for the rental market in recent years.

These include the elimination of mortgage tax relief, which does not apply to companies, the possible introduction of three-year tenancies, and the introduction of rules to improve the energy efficiency of rental properties. 

Time to buy? 

PRS takes on the day-to-day management of its properties and returns excess capital to shareholders. City analysts believe the company will distribute 5p per share in dividends next year, giving a dividend yield of 5.6% on the current share price

The best part is, no extra effort is required to earn this income. PRS manages the properties and deals with all other costs and taxes. If you own the shares inside of ISA, there is no additional tax to pay on the dividend income received – unlike income from buy-to-let property, which is taxed at your marginal rate. 

And the best part is you can invest in PRS for less than £1. Shares in the real estate investment trust are currently changing hands at around 90p, which means you can start to earn an income from buy-to-let property today with just a few pounds of investment.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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